Dispute Whether Partner Can Use Firm’s Trade Mark For His Own Sole Proprietorship, Can Be Referred To Arbitration: Delhi High Court

The Court further ruled that merely because a Statute specifies which Civil Court is to adjudicate a dispute, is not enough to infer the implicit non-arbitrability of such dispute.

In a suit filed by the plaintiff- M/s Liberty Footwear Company, seeking permanent injunction against the defendant- M/s Liberty International, from using the trade mark ‘Liberty International’, the defendant firm filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, seeking reference to arbitration.

The defendant, Liberty International, submitted before the High Court that it is not disputed that the plaintiff is the proprietor of the trade mark ‘Liberty’. It argued that the only dispute between the parties is whether the sole proprietor of the defendant firm, who is one of the partners of the plaintiff firm, can use the trade mark of the plaintiff. It added that there is no dispute in rem to be adjudicated and thus, the parties must be referred to arbitration in view of the arbitration clause contained in the Partnership Deed.

The plaintiff, Liberty Footwear, contended that though Dheeraj Gupta, the Sole Proprietor of the defendant firm, is a partner of the plaintiff firm, however, he does not have any personal rights in the plaintiff’s registered trade mark ‘Liberty’. The plaintiff averred that since the suit has been filed by it to claim relief under the Trade Marks Act, 1999, the same cannot be referred to arbitration.

Referring to the decision of the Supreme Court in Vidya Drolia and Ors. versus Durga Trading Corporation (2020), the Court noted that the Apex Court has drawn a distinction between actions in personam, which are actions which determine the rights and interests of the parties amongst themselves, and actions in rem, which determine the rights of the parties, not merely among themselves but also against all persons.

While rights in personam are amenable to arbitration, disputes in rem are required to be adjudicated by the Courts and Public Tribunals, and are unsuitable for private arbitration. However, the Supreme Court in Vidya Drolia (2020) had ruled that disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable, the High Court observed. For, instance, rights under a patent license may be arbitrated, but the validity of the underline patent is not arbitrable, the Court reckoned.

The High Court thus noted that the Supreme Court in Vidya Drolia (2020) had concluded that grant and issue of patents and registration of trade mark are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Since such grants confer monopoly rights, they are not arbitrable. However, the High Court ruled that the said observation of the Apex Court was not applicable to the present dispute since the Suit filed by the plaintiff did not relate to an issue of ‘grant or issue of or registration of trade mark’.

“The present suit is for enforcement of such a right, not against a third party which is a total stranger to the registered proprietor of the trademark, but someone who claims (whether rightly or wrongly) a right to use the trademark under or through the registered proprietor of the trademark”, the Court said.

The bench added: “What would govern the present dispute would, therefore, be the observations of the Supreme Court which state that where the claim in the Suit is the enforceability of rights in personam, flowing out of a right in rem, by virtue of the plaintiff being the proprietor of the said marks, the parties are to be referred to arbitration.”

The plaintiff, Liberty Footwear, argued before the Court that since under Section 134 of the Trade Marks Act, a suit for infringement cannot be instituted before a Court inferior to a District Court, therefore, by implication, a relief for infringement of a trade mark cannot be adjudicated by an Arbitrator.

Rejecting the contentions made by the plaintiff, the Court held that Section 134 of the Trade Marks Act does not totally exclude the jurisdiction of the Civil Courts to entertain and adjudicate upon a claim of infringement. It added that Section 134 merely provides that such a claim cannot be adjudicated upon by a Court inferior to the Court of a District Judge. The Trade Marks Act, therefore, does not create any specific forum for filing a suit for infringement of a trade mark, as a substitute for a Civil Court. The Court reiterated that merely because a Statute specifies which Civil Court is to adjudicate a dispute, is not enough to accept the inference of implicit non-arbitrability of such disputes.

The plaintiff, Liberty Footwear, further submitted before the Court that the plaintiff has distinct rights under the Trade Marks Act and the Partnership Act, and since the plaintiff has chosen the remedy under the Trade Marks Act and not under the Partnership Act, therefore, the parties cannot be relegated to arbitration.

The bench ruled that the doctrine of election of remedies is applicable only where there are two or more remedies available to the litigant at the time of election, which are repugnant and inconsistent. “In the present case, there is no inconsistency or repugnancy shown to exist between the rights of the plaintiff under the Trade Marks Act and the Partnership Act. The plaintiff cannot breach the arbitration agreement merely by framing the Suit as one under the Trade Marks Act”, the Court concluded.

The bench reiterated that only where the Court is certain that no valid Arbitration Agreement exists between the parties or that the dispute/subject-matter is not arbitrable, the application under Section 8 of the A&C Act would be rejected.

Ruling that the dispute between the parties must be referred to arbitration, the Court allowed the Section 8 application filed by the defendant and referred the parties to Arbitration.

Case Title: M/s Liberty Footwear Company versus M/s Liberty International

Citation: 2023 LiveLaw (Del) 34

Counsel for the Plaintiff: Mr. Rajshekhar Rao, Sr. Adv. with Mr. Kapil Wadhwa, Ms. Surya Rajappan, Ms. Tejasvini Puri

Counsel for the Defendant: Mr. Vijay Pal Dalmia, Mr. Rajat Jain, Mr. Aditya Dhar and Ms. Neelam Dalmia

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